Avoiding Expensive Municipal Mergers

An article in The Wall Street Journal discussed attempts to merge local governments in Michigan. While efforts such as these gain wide support because of the belief that they will save money, there evidence shows the opposite.

Government consolidations may seem to make all of the sense in the world academically. In practice, they cost more. There are no economies of scale in larger governments, except for spending interests. Voters have less influence in larger jurisdictions.

A simple look at the evidence, rather than the theory, indicates this. Our analysis in five states shows it, and the differences are stark. Lower per capita spending and taxation at the local general government level is associated with smaller units of government.

It is not therefore surprising that in Toronto, Hamilton and Ottawa there have been calls to "demerge" cities forcibly merged in the 1990s. In a debate in Toronto last October with a top transit official (a member of the left leaning National Democratic Party), we agreed on at least one thing --- that Toronto's amalgamation had been a mistake.

Nor is it surprising that despite huge electoral barriers erected by the Charest government, a number of municipalities voted to demerge from the forcibly enlarged ville de Montreal in the early 2000s.

For the most part, however, there is no going back. Mergers are forever. So are the higher taxes and higher spending.

My commentary in Canada's National Post dealt with this issue on the 10th anniversary of the Toronto amalgamation.

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An article in The Wall Street Journal discussed attempts to merge local governments in Michigan. While efforts such as these gain wide support because of the belief that they will save money, there evidence shows the opposite.
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An article in The Wall Street Journal discussed attempts to merge local governments in Michigan. While efforts such as these watch magi anime gain wide support because of the belief that they will save money, there evidence shows the opposite.
Government consolidations may seem to make all of the sense in the world academically. In practice, they cost Minamoto-kun Monogatari manga read more. There are no economies of scale in larger governments, except for spending interests. Voters have less influence in larger jurisdictions.
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The biggest problem with the mergers are the retaining of the HIGHEST costs for each department of the merged entity. The entities with the highest costs is the spending standard from then on. It should be the entity with the LOWEST costs but that doesn't happen. Largely due to politics........

So that means that the entity with the department with the lowest costs are lost during the merger. But these mergers are sold as cost savings but have no way of doing so. They are lying to the voting public pure and simple. Maybe you can save a few bucks by buying things in bigger bulk, but those are rarely the largest expenses. You don't have to merge to buy things together to begin with.

Unless you go with what the entity with the LOWEST costs you aren't going to save any money, but end up spending far more because you eliminated the low cost department raising it to the costs of the highest.

Lets say one city has a police department that cost $100 per resident, and the other city has a police department that costs $150 per resident. You merge and the costs rise with the department with the lower costs. So how did you save money. The answer, you didn't, you are now spending more money.

The standard needs to be set at the lowest cost department. So the department that costs $150 needs to go down to $100 to match the lower cost city.

Unfortunately that means real costs need to go and that is hard when people are going to be let go (since employee costs are the biggest expense). In my town, we looked at merging our fire department with the neighboring towns fire department. There was opposition mainly from the employees of the other towns department. Why? Well, in my town, we have a pretty low cost department already (we still have a volunteer fire force). The only full time employee in our fire department is the fire chief. All the other employees are hourly, so they only work when on a fire call, training etc. We don't staff the firehouses (very low volume of calls). Everybody but the chief have day jobs and firefighting is a side job. Privatized ambulance companies cover the majority of paramedic calls.

The other department has full time firefighters and a chief and assistant chief. Interestly enough, the towns are about the same size and have about the same amount of calls and they don't staff the firehouse either. However their costs are much higher with salaries and benefits. They have since privatized the ambulance service. So you can see why the employees of the other department didn't like the idea of merging, because they believed they would no longer have full time jobs and would be hourly like my towns department.

So had they merged, it would have increased costs as my town likely would have added full time employees. I doubt they would have been able to change the other departments employees to hourly and no benefits. Frankly there really wasn't all that much in it for my town, as our department is about as efficient as a government body can get.

So it didn't happen. Maybe it would have worked had their department been a volunteer hourly force, and getting rid of one of the chiefs the main savings. But since there were full time employees looking to keep their jobs, the politics put a stop to it.

It also seems that larger departments end up with much larger "back office" and administrator staffs, and those people often get paid more then average employees. Smaller towns generally don't have as many of those people because they cannot justify them to voters that live next door. So you end up not saving that either as more people are added to "run" the larger departments.

When it comes to government, larger is not better. Yes, its the opposite of the private sector, but government will never have the profit motive. Frankly cost containing is done by people outside of government as those inside really cannot do it or will not do it. So these governments need to stay small so taxpayers have a chance of containing the costs.